08 September 2011

A Fofoarain take on the swiss move

The Swiss National Bank press release: "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development."

The Fofoarian rephrase: "Too many people are trying to store value in our currency, which is distorting it's role as a medium of exchange. We'd rather you save your wealth in something whose price increase won't impact the economy because it has minimal industrial/productive use but which many people still think is valuable anyway. Hey, I know, how about gold?"

Like someone once said (referring to dollars as representing all paper): "Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary" Etc, etc, and something about removing the gnomes from your front yard to accommodate currency drops

The linked article says the Fed doesn't own the US gold, but the online version of the Federal Reserve balance sheet says the Fed has "monetized" practically all the Treasury's gold by accepting receipts for it in exchange for crediting the Treasury's account with dollars. http://www.federalreserve.gov/monetarypolicy/bst_table10popup.htm, footnote 2.

There's a fundamental conflict between a medium of exchange and a store of value. A store of value is naturally hoarded. A medium of exchange needs to circulate, or the economy collapses like a patient in shock whose blood is pooling in places instead of being pumped around.